A Road Map for Natural Capitalism by Amory B. Lovins, L. Hunter Lovins, and Paul Hawken Reprint 99309 MAY–JUNE 1999 Reprint Number kathleen m. eisenhardt and PATCHING: RESTITCHING BUSINESS PORTFOLIOS 99303 shona l. brown IN DYNAMIC MARKETS robert simons HOW RISKY IS YOUR COMPANY? 99311 jay w. lorsch and CHANGING LEADERS: THE BOARD’S ROLE IN CEO SUCCESSION 99308 rakesh khurana A ROUNDTABLE WITH PHILIP CALDWELL, GEORGE D. KENNEDY, G. G. MICHELSON, HENRY WENDT, AND ALFRED M. ZEIEN JON R. KATZENBACH AND FIRING UP THE FRONT LINE 99307 JASON A. SANTAMARIA ROSABETH MOSS KANTER FROM SPARE CHANGE TO REAL CHANGE: THE SOCIAL 99306 SECTOR AS BETA SITE FOR BUSINESS INNOVATION JEFFREY PFEFFER AND THE SMART-TALK TRAP 99310 ROBERT I. SUTTON AMORY B. LOVINS, L. HUNTER A ROAD MAP FOR NATURAL CAPITALISM 99309 LOVINS, AND PAUL HAWKEN JACQUELINE VISCHER HBR CASE STUDY WILL THIS OPEN SPACE WORK? 99312 DAVID DUNNE AND thinking about… CHAKRAVARTHI NARASIMHAN THE NEW APPEAL OF PRIVATE LABELS 99302 DANNY ERTEL IDEAS AT WORK TURNING NEGOTIATION INTO A CORPORATE CAPABILITY 99304 donald f. hastings first person LINCOLN ELECTRIC’S HARSH LESSONS FROM 99305 INTERNATIONAL EXPANSION nicholas g. carr books in review BEING VIRTUAL: CHARACTER AND THE NEW ECONOMY 99301 A Road Map for Natural Capitalism Business strategies built around the radically more productive use of natural resources can solve many environmental problems at a profit. by Amory B. Lovins, L. Hunter Lovins, and Paul Hawken n september 16, 1991, a small group of scientists was sealed inside Biosphere II, a glittering 3.2-acre glass and Ometal dome in Oracle, Arizona. Two years later, when the radical attempt to replicate the earth’s main ecosystems in minia- ture ended, the engineered environment was dying. The gaunt re- searchers had survived only because fresh air had been pumped in. Despite $200 million worth of elaborate equipment, Biosphere II had failed to generate breathable air, drinkable water, and ade- quate food for just eight people. Yet Biosphere I, the planet we all artwork by craig frazier Copyright © 1999 by the President and Fellows of Harvard College. All rights reserved. a road map for natural capitalism inhabit, effortlessly performs those tasks every day of those services doesn’t appear on the business for 6 billion of us. balance sheet. But that’s a staggering omission. The Disturbingly, Biosphere I is now itself at risk. The economy, after all, is embedded in the environment. earth’s ability to sustain life, and therefore eco- Recent calculations published in the journal Na- nomic activity, is threatened by the way we extract, ture conservatively estimate the value of all the process, transport, and dispose of a vast flow of re- earth’s ecosystem services to be at least $33 trillion sources –some 220 billion tons a year, or more than a year. That’s close to the gross world product, and 20 times the average American’s body weight every it implies a capitalized book value on the order of day. With dangerously narrow focus, our industries half a quadrillion dollars. What’s more, for most of these services, there is no known sub- stitute at any price, and we can’t live with- Some very simple changes to the way we run our out them. businesses can yield startling benefits for today’s This article puts forward a new approach not only for protecting the biosphere but shareholders and for future generations. also for improving profits and competitive- ness. Some very simple changes to the way we run our businesses, built on advanced look only at the exploitable resources of the earth’s techniques for making resources more productive, ecosystems – its oceans, forests, and plains – and not can yield startling benefits both for today’s share- at the larger services that those systems provide for holders and for future generations. free. Resources and ecosystem services both come This approach is called natural capitalism be- from the earth – even from the same biological sys- cause it’s what capitalism might become if its tems – but they’re two different things. Forests, for largest category of capital – the “natural capital” of instance, not only produce the resource of wood ecosystem services – were properly valued. The fiber but also provide such ecosystem services as journey to natural capitalism involves four major water storage, habitat, and regulation of the atmo- shifts in business practices, all vitally interlinked: sphere and climate. Yet companies that earn income ■ Dramatically increase the productivity of natural from harvesting the wood fiber resource often do so resources. Reducing the wasteful and destructive in ways that damage the forest’s ability to carry out flow of resources from depletion to pollution rep- its other vital tasks. resents a major business opportunity. Through fun- Unfortunately, the cost of destroying ecosystem damental changes in both production design and services becomes apparent only when the services technology, farsighted companies are developing start to break down. In China’s Yangtze basin in ways to make natural resources – energy, minerals, 1998, for example, deforestation triggered flooding water, forests –stretch 5, 10, even 100 times further that killed 3,700 people, dislocated 223 million, than they do today. These major resource savings and inundated 60 million acres of cropland. That often yield higher profits than small resource sav- $30 billion disaster forced a logging moratorium ings do – or even saving no resources at all would – and a $12 billion crash program of reforestation. and not only pay for themselves over time but in The reason companies (and governments) are so many cases reduce initial capital investments. prodigal with ecosystem services is that the value ■ Shift to biologically inspired production models. Natural capitalism seeks not merely to reduce A MacArthur Fellow, Amory B. Lovins is the research waste but to eliminate the very concept of waste. In director and CFO of Rocky Mountain Institute (RMI). closed-loop production systems, modeled on na- ture’s designs, every output either is returned harm- L. Hunter Lovins is the CEO of RMI, the nonprofit re- lessly to the ecosystem as a nutrient, like compost, source policy center they cofounded in 1982 in Snowmass, Colorado (http://www.rmi.org). or becomes an input for manufacturing another product. Such systems can often be designed to Paul Hawken is the founder of the Smith & Hawken retail eliminate the use of toxic materials, which can and catalog company, cofounder of the knowledge- hamper nature’s ability to reprocess materials. management software company Datafusion, and author ■ Move to a solutions-based business model. The of Growing a Business (Simon & Schuster, 1983) and The business model of traditional manufacturing rests Ecology of Commerce (Harper Collins, 1993). on the sale of goods. In the new model, value is in- Hawken and the Lovinses consult for businesses world- stead delivered as a flow of services –providing illu- wide and have coauthored the forthcoming Natural Capi- mination, for example, rather than selling light- talism (Little Brown, September 1999). bulbs. This model entails a new perception of value, 146 harvard business review May–June 1999 a road map for natural capitalism Reducing the wasteful and destructive flow of resources represents a major business opportunity. harvard business review May–June 1999 147 a road map for natural capitalism a move from the acquisition of goods as a measure of the important business opportunities they re- of affluence to one where well-being is measured by veal. But first, let’s map the route toward natural the continuous satisfaction of changing expecta- capitalism. tions for quality, utility, and performance. The new relationship aligns the interests of providers and Dramatically Increase the Productivity customers in ways that reward them for imple- menting the first two innovations of natural capi- of Natural Resources talism –resource productivity and closed-loop man- In the first stage of a company’s journey toward ufacturing. natural capitalism, it strives to wring out the waste ■ Reinvest in natural capital. Ultimately, business of energy, water, materials, and other resources must restore, sustain, and expand the planet’s eco- throughout its production systems and other opera- systems so that they can produce their vital services tions. There are two main ways companies can do and biological resources even more abundantly. this at a profit. First, they can adopt a fresh ap- Pressures to do so are mounting as human needs ex- proach to design that considers industrial systems pand, the costs engendered by deteriorating ecosys- as a whole rather than part by part. Second, compa- tems rise, and the environmental awareness of con- nies can replace old industrial technologies with sumers increases. Fortunately, these pressures all new ones, particularly with those based on natural create business value. processes and materials. Natural capitalism is not motivated by a current Implementing Whole-System Design. Inventor scarcity of natural resources. Indeed, although many Edwin Land once remarked that “people who seem biological resources, like fish, are becoming scarce, to have had a new idea have often simply stopped most mined resources, such as copper and oil, seem having an old idea.” This is particularly true when ever more abundant. Indices of average commodity designing for resource savings. The old idea is one prices are at 28-year lows, thanks partly to powerful of diminishing returns – the greater the resource extractive technologies, which are often subsidized saving, the higher the cost. But that old idea is giv- and whose damage to natural capital remains un- ing way to the new idea that bigger savings can cost accounted for. Yet even despite these artificially less – that saving a large fraction of resources can low prices, using resources manyfold more produc- actually cost less than saving a small fraction of tively can now be so profitable that pioneering resources.